RMD and still working exception with retirement on12/31
Hello,
I’ve read many articles on this topic, including a couple by Jeff Levine on this website and on kitces.com, but it still doesn’t seem clear.
According to Levine’s articles, if someone works on 12/31 and retires on that day, the RMD is due for that year. For example, working and retiring on 12/31/2021, the first RMD year is 2021 with an RBD of April 1, 2022. I have someone who emailed me to say they spoke with an IRS agent and explained that because, “I will be on the payroll on 12/31/2021, the last day of year 2021; and my retirement year would be 2022.” Accordingly, the first RMD year is 2022 with an RBD of April 1, 2023.
Who’s right? What’s the defining fact that determines whether the first RMD is 2021 or 2022? If someone works on 12/31/21 and retires that day, their last paycheck will be paid in 2022 and they’ll receive a W-2 in 2022 for this last paycheck. Does the fact they received their last paycheck in 2022 have a bearing on hen their first RMD year is, or is it based on the day/year that the company documents their retirement? Is there a standard, or typical protocol, for someone working and retiring on the last day of the year? Would an employer typically document retirement as 12/31/21 or 1/1/22?
Any thoughts are references to code is very much appreciated.
Thank you!
Permalink Submitted by Alan - IRA critic on Wed, 2021-12-01 01:35
The IRS has not clearly defined such terms as “separation from service” or “retirement”, and therefore this status is apparently determined by the employer’s HR bookeeping practices. I do recall reading Jeff Levine’s article and have attached a link below where he states that a retirement on 12/31 even after working that day will trigger an RMD distribution year if the employee is otherwise RMD age and payroll logs the retirement date as the last day worked. He states that this is the IRS position, but does not provide a cite. Despite the contrary view of the IRS agent, I am inclined to favor Levine’s experience and expertise. There likely is not uniformity for date of retirement recording from company to company, but I think the company if favored by adopting the last day actually worked as the effective retirement date. W-2 forms to reflect vested vacation pay or sick pay are immaterial.
Delaying 401(k) RMDs With The Still-Working Exception (kitces.com)